NYMEX, London Exchange Discuss Merger

The International Petroleum Exchange (IPE), based in London, accepted an offer from NYMEX last week to look into a possible merger, which would create a "single global energy exchange." An agreement to join the exchanges would affect companies which sell commodities internationally in both markets. The domestic gas markets in both countries, however, would see little impact.

The board of directors for each organization agreed to create a joint working group to investigate the options. Although the possibility of a merger is being explored, the preliminary nature of the situation was stressed. "Before you can talk about other hurdles, I think the biggest hurdle will be to determine the scope of the deal, if there is any," said Nachamah Jacobovits, a NYMEX spokesperson.

Jacobovits added that oil companies stand to benefit from an agreement because they are more likely to do business in both exchanges. If these exchanges merge into a single entity, companies will be able to deal with both markets at once, creating greater efficiency.

This agreement marks IPE's acceptance of an offer NYMEX made six months ago. Earlier this year, both exchanges embarked on a joint venture to develop an after-hours electronic trading platform. "The concept of a single global energy exchange with operations in New York and London," the company said, "emerged during the course of these discussions."

The creation of this working group is the first joint move by the two organizations on behalf of that concept. It is composed of six representatives from IPE and four members of NYMEX's executive committee. The group's duties include discussing the feasibility of merger possibilities with regulatory commissions for both countries, defining the structure of the merger, then reporting their findings to the boards of both exchanges. So far, the UK's regulatory agency, the Financial Service Authority, has been contacted by the group. Results of the discussion were not disclosed. A meeting with the U.S. Commodity Futures Trading Commission (CFTC), has been scheduled for early December. The exchanges have set no timetable for the group's progress.

"I'm interested to see what will happen after the joint committee makes their report," said Seana Lanigan, spokeswoman for IPE, whose membership is made up of about 40 floor members, "If the board decides that the changes in the report are for the better, they'll put a vote before the membership. Seventy-five percent of our membership will have to agree on the changes before they're implemented."

Sources from NYMEX also said that a membership vote is possible, but not required. The scope of the proposal will determine the U.S. exchange's course of action.

John Norris

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